I can confirm that that is something sbyvl does NOT understand. We've explained this over at webdip as well.

sbyvl, could you please name me example where a massive deflation lead to a economy boost?
(except after a massive inflation of course)

@fasces: Just stop taking things from other countries. Make what we need here.

@Blasphemy: Forbes thinks it works: http://www.forbes.com/sites/johntamny/2013/06/30/dont-believe-the-hysterics-deflation-is-our-path-to-economic-revival/

And besides, we are in a massive inflation right now, so...

nah, by massive inflation i meant something like Germany in the twenties...you just have a quite "normal" inflation right now...and the guy in the article didn't talk about putting a moratorium on printing money...

I don't want that either. A gold standard would do perfectly.

But gold has no constant value...quite the opposite is the case.

@fasces: is it possible that you have your number according to the last month, and i have it per year?

Deflation worked really well for Japan from 1992-2011 #sarcasm

There is not much reason why either inflation or deflation would be either good or bad unless it was unexpected. It is harder to get wild deflation than it is to get wild inflation. I'm in the minority here, but I tend to mark Japan's problems down to the fact that their laborforce was shrinking from 1991 onward. Taiwan had an equally large asset bubble with a much more horrific crash at the exact same moment as Japan and recovered relatively quickly. I would not wager money on it but it would seem that these two data points lean towards either "demographics are destiny" or "it is better to have a big crash than a slow leaking balloon".

Gold has tended to maintain its purchasing power in terms of bread over the millenia, which is to say it is a terrible "investment".

To all people putting links to Forbes, the website is just a clearing house for bloggers it has no editorial content and does not represent any endorsed opinion. There are complete whackjobs on both sides on the site. Please link to James Grant if you want an argument for a gold standard.

A historical point worth making about Germany is that Germany actually had two hyperinflations. Germany, Italy, Austria, Hungary and Poland all had a hyperinflation right after the war due to the massive disruptions caused by the collapse of the economic networks in the Central Europe and the Allies effectively starving Germany by maintaining the blockade after the war ended to extract Germany's gold reserves and merchant marine before reparations were even negotiated. Germany paid more money on net for food in the Winter of 1918-1919 than they actually paid on reparations from 1923 to 1933. Then Germany recognized the Soviet Union as a diplomatic ploy while arguing over reparations and the French and Belgians invade the Ruhr Valley. Fully half of the Germany GDP passed through the Ruhr, and as the German economy shut down, the Reichsbank printed money on a massive scale causing a second hyperinflation after the first one had ended everywhere else. The Reichsbank bought in the entire German National Debt for around $500,000 after it was over. Hugo Stinnes and the various inflation koenigs of Mitteleuropa are some interesting history. Boris Berezovsky credited a communist propaganda book about the evils of capitalism centered on Hugo Stinnes that he was forced to read in school for making him a billionaire during the post-Soviet hyperinflation.

I don't claim to understand how monetary policy works in any sort of deep way. It is very, very hard to fit money into a seriously constructed, theoretically grounded, structural model of the macroeconomy in a realistic way.

http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884

"American firms investing in Chinese manufacturing creates a trade deficit for America when in reality America benefits more then China from the investment."

Actually, investing in China has 0 initial impact on balance of trade. It has, however, a debit impact on the financial account, since dollars are leaving the US as investment. An investment nevertheless implies an implicit return on it, which will be recorded as a credit on the financial account when you repatriate the profit. The fact that importing the profit-generating product to your domicile would result in a trade deficit is largely irrelevant, since the profit from it would be a counterbalancing item in the balance of payments. Unless your country is the sole importer of said product, you will hardly run a balance of payment deficit due to such business arrangement,

Of course this whole argument is rather moot if we're specifically talking about the US. Pretty much all macroeconomic schools since the mercantilists have recommended some sort of positive balance of payments as a sign of successful governance. When all countries strive for positive balance of payments, there is naturally quite a shortage for countries with negative BoP to offset the positives - the accountancy is a zero-sum game after all. Apart from countries that failed in this global race (Greece), the only natural country to run a gigantic BoP deficit today is the US, home of the USD, the reserve currency of the world. As long as the USD is the reserve currency, BoP deficits are of little worry to the US, although it must be noted that the structure of the BoP deficit has been increasingly deteriorating since the moment Ronald Reagan assumed the office of POTUS. The previously healthy deficit consisting of exporting investment and capital in general (which, as mentioned, intrinsically imply a reverse inflow of profit sometime in the future) has been replaced with rather mundane import of consumer goods (which imply nothing of the sort). So the BoP deficit starts to lack natural negative feedback mechanisms that would keep it in check from possibly running rampant in case the USD uses its dominating position in the world economy. But as of now, this vulnerability does not bear any negative influence on the health of US economy. Really, the too-narrow-to-give-an-accurate-picture balance of trade deficit is usually used as a scapegoat for some other economic problem. Or rather, it is used to push agenda that is close to one's heart - protectionism, returning unviable jobs home, you pick your poison.